5 Years After Lehman

Sep 19, 2013 by

Lehman Brothers building

Lehman Brothers Rockefeller Center

At 1:45 am on September 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection after 158 years in business. The filing became the largest bankruptcy in U.S. history and helped precipitate the financial meltdown that marked the beginning of The Great Recession, from which the U.S. has not fully recovered. Short-term interest rates remain near zero, and after peaking at 10% in October 2009, the unemployment rate is still a historically high 7.3%. (The rate was less than 5% as recently as February 2008.)

Happy Days Are Here Again?

Today, memories have faded. Wall Street brashly celebrates the recovery of broad-based equity indexes to levels first reached thirteen years ago in 2000. Few seem to recall the extraordinarily intense fear during one of the meltdown’s hottest moments when Fed Chairman Bernanke told Congressional leaders on a Thursday that if they didn’t authorize $700 billion in bailout cash on Friday, there’d be no (U.S.) economy on Monday. Now that’s what I call a “hard sell”!

Today, chutzpah restored, Wall Street’s got its swagger back. And why not? Politicians have long abandoned their vow to break up “too big to fail” institutions. No one on Wall Street has been prosecuted for anything meltdown related. Lawyers and Harvard MBAs work with joyous, high-paid energy at subverting the Dodd-Frank Act in order to preserve the mammoth compensation structure Wall Streeters enjoy. Money is flowing into equity funds. The continuously rotating panel of charlatans on CNBC crow and preen. Retail investors (that’s you) are slurping the money managers’ Kool Aid® that you must turn over the lion’s share of your nest egg to Wall Street to have any hope of retiring, ever, you poor sap.

Yep, the coast is clear, Wall Street’s been vindicated, and it’s safer than ever to entrust your nest egg to stocks, right? Wellll, I don’t think so.

Stocks Are Riskier Than You Think

As you know if you’ve been following Money Counselor for long, I’m not anti-stock, but I am pro-truth. And the truth is, in my opinion, stock investing is far riskier than the people who make loads of money “managing” investments for people like you have trained you to believe. (See Must I Own Stocks?, Retire Stockless?!? Blasphemy!, Why I’m Wary of Stocks, and Stock Bandwagon Rolling Again.) Millions of people who’d accepted the Gospel as Preached By Wall Street and stayed largely invested in stocks even as they approached retirement in 2008 will now be working indefinitely instead of retiring. And they may be working at a much lower rate of pay if they lost a job during the recession. Most had little or no understanding that half of their retirement nest egg could go “poof” virtually overnight. But it did.

 

Image of Lehman Brothers Rockefeller Center by David Shankbone.

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2 Comments

  1. MoneySmartGuides

    We are always going to be faced with the prospect of a really bad stock market where we could lose a good chunk of our investments. I think though that we need to be able to analyze the odds of the size of the pullbacks. The 2008 crisis most likely won’t repeat itself any time soon.

    When I get closer to retirement age, I will most likely see the stock market riskier than I do now. Roght now, I see the pullbacks as buying opportunities.

    • Crises of any sort rarely repeat, because human nature–especially politicians’ human nature–is to “fix” things after the fact rather than preventively. The next crisis will be different than the last, and people will realize could have been prevented, if only politicians and regulators weren’t fully occupied with CYA (that’s ‘cover your ass”) as a profession.

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